Xiaomi leading the pack on the Chinese smartphone market

Xiaomi's name may mean close to nothing in western markets, but the smartphone maker is well-known in Asia for its powerful yet affordable handsets. Take the new Mi 4 flagship, for instance. It rivals HTC's One (M8) in the specs department, but can be had for less than what Google asks for its Nexus 5. There's a similar story with other Xiaomi-made devices, that are proving to be extremely popular with consumers in China.

Xiaomi's smartphones are so popular in China that, in the second quarter of the year, they allowed the manufacturer to overtake worldwide leader Samsung in the local Asian market, according to a new report from analyst firm Canalys. Xiaomi, which is a Chinese vendor, was responsible for 14 percent of smartphone shipments in the country, surpassing Samsung, Lenovo, Yulong and Huawei. The combined market share of top worldwide vendors Samsung and Apple was just 18 percent in China in Q2 2014, as the two were able to ship just 20 million units put together.

China is the largest smartphone market worldwide, accounting for 37 percent of all shipments in Q2 2014. That means that of the 292.4 million smartphone shipped during the quarter across the globe, 108.5 million of them found their way to China. Interestingly enough, in Q2 2014, of the top ten vendors in China, only two were not local - Samsung and Apple.

"This is a phenomenal achievement for Xiaomi", points out Canalys research analyst Jingwen Wang. "Undoubtedly this was helped by an anticipated, temporarily under-strength Samsung performance during the quarter. But that is only half the story - Xiaomi has also executed on its strategy to grow volume shipments. It has delivered compelling products at aggressive price points, focused chiefly on its locally relevant MIUI software features and services, backed by effectively targeted marketing. In particular, its affordable RedMi range is booming and has been the driver for growth, despite attracting less global media attention than its flagship Mi products. But it does now need to deliver LTE products in China to address growing demand for 4G services if it is to retain its momentum".

Analyst Jessica Kwee, however, warns that Xiaomi will face some challenges in "scaling its model for success" on a larger, international scale. Canalys says that the Chinese maker is eying an international expansion, with Indonesia, Mexico, Russia, Thailand and Turkey to see its Android-based smartphone in the second half of this year.

"Xiaomi needs to build its international brand, and will need to localise its services offering with MIUI for the different markets into which it expands, else its differentiation, value proposition and service-oriented revenue streams will be eroded", adds Kwee. "And it must tailor its marketing and largely online sales channels accordingly. That said, Xiaomi does have the potential to be a disruptive force beyond China and international vendors should take note".

Xiaomi grew 240 percent year-over-year in China to become to the top smartphone vendor locally, shipping roughly 15 million units during Q2 2014. Meanwhile, Samsung registered a 15 percent decline in market share year-over-year, which caused its second place-worthy standing. It should be noted that Q2 2014 is when its Galaxy S5 flagship hit most international markets, including China.

Canalys adds that "Samsung’s efforts to realign its channel inventory to meet changing demand during the quarter led to a reduction in its overall shipment numbers that is not expected to affect Q3 2014 to a similar extent, though with the market in China becoming even more competitive, it will not be straightforward to reestablish leadership".

With such an outstanding performance on Xiaomi's part, the former leader might have to settle for second place from now on, unless it manages to deliver more powerful devices are much lower price points.